SHPs belong to a family of cytosolic protein tyrosine phosphatases (PTPs) that contain two tandem SH2-domains at the N-terminus followed by a single catalytic domain and a C-terminal tail. SH2 domains target SHPs to phosphorylated tyrosine residues of growth factor receptors and the ITIM motifs of the inhibitory receptors in lymphocytes. SHPs display a very low specific activity in vitro compared to other PTPs. This is partly due to the auto-inhibition by their regulatory domains. Binding of its SH2 domains to tyrosine-phosphorylated peptides with the ITIM motif can increase the PTPase activity. The essential question addressed in this proposal for SHPs is how does the modification at the N-terminus of SHPs (binding the ITIM motif) activate the protein tyrosine phosphatase? Biochemical and crystallographic approaches are proposed in order understand the regulatory mechanism of SHPs. Another question addressed in this proposal is what is the structural basis for the substrate specificity of SHPs? The proposal will examine the SHP specificities, through detailed kinetic analyses, against a variety of potential substrates including ITAMs, CD22, CD72 or CTLA4. Complementing these studies will be the crystal structures of the catalytic domain of SHP-1 and SHP-2, with different phosphotyrosine peptides bound, in order to identify the substrate binding pockets in SHP-1 and SHP-2. Also proposed is a screen for identifying ideal substrates using phosphotyrosine peptides that can be bound to the mutated catalytic domain of SHP-1 and SHP-2, using the oriented peptide library technique. The long-term goal of this proposal is to understand the fine-tuning regulatory functions of SHP-1 and SHP-2 on lymphocyte signaling.